MONTREAL, Feb. 27, 2013 /CNW Telbec/ - The Caisse de dépôt et placement
du Québec announced that it earned a 9.6% weighted average return on
depositors' funds for the year ended December 31, 2012. This return is
higher than that of its benchmark portfolio, which was 9.3% The
Caisse's net assets totalled $176.2 billion at the end of 2012, versus
$159.0 billion as at December 31, 2011. This growth is due to
$14.9 billion in net investment results, plus $2.3 billion in net
deposits.

"Our 2012 results contribute to the work we have done since we
restructured our portfolios in the summer of 2009 to generate solid
long-term results. Since the restructuring, we have generated a 10.7%
annualized return despite an uncertain and volatile economic climate,"
said Michael Sabia, President and Chief Executive Officer. "Again this
year, we increased our investments in Québec and focused on this market
to generate returns by helping Québec companies grow, at home and
abroad."

"These results reflect the efforts we've made in recent years, but one
thing is certain: we still have more work to do. In a changing world
economy that has begun to gradually recover, we will continue to pursue
our new strategic plans, which aim for even greater long-term
stability," added Mr. Sabia.

"In 2012, we continued to invest in Québec companies of all sizes, in
all regions. In today's globalized world, it's critical to build strong
companies that can succeed in international markets. By supporting our
promising small, medium-sized and large businesses in their growth, we
are making sound investments to benefit our depositors and Québec's
economy," Michael Sabia said.

The Caisse's new investments and commitments in Québec reached $2.9
billion in 2012 and now total $8.3 billion since 2009.

The Caisse's assets in Québec rose by $5.9 billion in 2012, to reach
$47.1 billion as at December 31.

Serving as a bridge to global markets
During the year, the Caisse provided support to CGI Group and Genivar
for their acquisitions in the United Kingdom. With a $1.0-billion
investment from the Caisse, CGI carried out an acquisition that made it
the world's sixth-largest player in the information technology
industry.

Investing in promising projects
The Caisse also contributed to the growth and positioning of several
Québec companies in various sectors, with investments in Camoplast
Solideal, Gildan, Innergex Renewable Energy, Laurentian Bank and Rona.

Ivanhoé Cambridge, the Caisse's real estate subsidiary, became the sole
owner of Place Ste-Foy shopping centre in Québec City and Galeries
Rive-Nord shopping centre in Lanaudière and invested in the
redevelopment and modernization of some of its Québec assets, including
the Château Frontenac hotel.

Active in the growth of Québec SMEs
In partnership with Desjardins Group, the Caisse financed the operations
of more than 60 small and medium-sized businesses in the manufacturing
and services sectors throughout Québec. In the spring of 2012, the
Caisse also increased its investment budget for publicly traded small
caps by $150 million.

Other achievements
Having solidified its foundations and reduced its level of risk, in 2012
the Caisse continued to simplify its operations and began implementing
its new investment strategy.

Creation of the Global Quality Equity portfolio

An absolute-return portfolio focusing on quality securities that
generate more stable returns over the long term

In 2012, the Caisse also added four new depositors, bringing the number
of depositors to 29.

HIGHLIGHTS OF 2012 RESULTS

"In 2012 global growth ran out of steam and we had a slowdown in
emerging markets, a sustained recession in Europe and a timid recovery
in the United States. In this context, Canada and Québec also slowed.
Even so, progress was made: the private sector recovered in the United
States and an upturn began in China and certain emerging markets. These
positive signs, combined with strong action by European policymakers to
shore up the euro, enabled the equity markets to finish the year on a
stronger footing. But the weak materials sector and pressure on the
energy industry held the Canadian markets back. As for interest rates,
they reached historic lows in the major developed countries," commented
Roland Lescure, Executive Vice-President and Chief Investment Officer.

The Caisse's 9.6% return exceeded that of its benchmark portfolio, which
was 9.3%, equivalent to a positive difference of $462 million.

Fixed Income generated $2.3 billion in net investment results with a 3.9% return.
This return is mainly attributable to bond interest income.

Inflation-Sensitive Investments, which include in particular the Infrastructure portfolio (up 8.7%) and
the Real Estate portfolio (up 12.4%), had an 11.1% return. This asset
class generated $2.5 billion in net investment results.

With a 12.2% return, the Equity class made the most substantial contribution to the Caisse's overall
results, generating $8.8 billion in net investment results, with $2.1
billion coming from the Private Equity portfolio. All the portfolios in
this class generated returns of more than 13.5%, with the exception of
the Canadian Equity portfolio (up 6.6%). The underperformance of this
portfolio is due to a heavier weighting in the energy and materials
sectors, which did not fare as well in 2012. Its performance is also
due to a weaker rebound in the Canadian financial sector, particularly
vis-à-vis the U.S. market.

Asset Allocation operations generated negative results of $422 million, mainly because
of the overweighting and underweighting on the equity and bond markets
during the year. Such decisions are based partly on the conviction
that, given the current level of historically low interest rates, bonds
will not perform as well as other asset classes in the years to come.

In 2012, the ABTNportfolio made a $1.7-billion contribution to the overall portfolio results,
mainly because the notes' market values have increased with the passage
of time (less time to maturity) and due to the narrowing of credit
spreads of the underlying assets.

The fact sheets included with the press release provide detailed
information on the performance of each of the Caisse's portfolios as
well as on economic and financial conditions, investment valuation and
the transition to IFRS.

LONG-TERM PERFORMANCE HIGHLIGHTS

In the first half of 2009, the Caisse reorganized its operations. In
particular, it completed an extensive overhaul of its portfolio
offering and risk management and it also repositioned the portfolios in
the real estate sector. Since making these major changes, the Caisse
has achieved an annualized return of 10.7%, equivalent to net
investment results of $50.7 billion.

Fixed Income generated net investment results of $14.7 billion with a 7.7%
annualized return. The strategies implemented by the Caisse for this
asset class enabled it to benefit from the significant drop in interest
rates in recent years.

In the Inflation-Sensitive Investments asset class, the Infrastructure and Real Estate portfolios generated
annualized returns of 26.7% and 10.7%, respectively. This asset class
generated $10.3 billion in net investment results, of which
$9.9 billion is attributable to these two portfolios.

During this period, the Equity asset class made the largest contribution, with net investment results
of $22.8 billion. Of that amount, $8.1 billion is attributable to the
Private Equity portfolio and its 18.3% annualized return.

The Caisse's 10.7% return exceeds that of its benchmark portfolio of
9.2%. This is equivalent to $6.9 billion in additional net investment
income for depositors. All asset classes contributed to this
value-added by outperforming their indexes during this period.

FINANCIAL FOUNDATIONS

During 2012, the Caisse's financial position remained solid. As at
December 31, the Caisse's available liquidity totalled $41.0 billion
and leverage (liabilities over total assets) stood at 18.0%.

In 2012, the Caisse continued to improve its efficiency and pay close
attention to its operating expenses. Operating expenses, including
external management fees, totalled $295 million in 2012. The ratio of
expenses to average net assets was 17.9 basis points (18.0 basis points
in 2011) and continues to place the Caisse among the leaders in its
management category.

ABOUT THE CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC

The Caisse de dépôt et placement du Québec is a financial institution
that manages funds primarily for public and private pension and
insurance plans. As at December 31, 2012, it held $176.2 billion in net
assets. As one of Canada's leading institutional fund managers, the
Caisse invests in major financial markets, private equity,
infrastructure and real estate globally. For more information: www.lacaisse.com.

In 2012, the developed countries, especially the United States, made
progress in their efforts to resolve some of the imbalances that have
beset their economies in recent years. Even so, the year was generally
disappointing from the economic standpoint.

After recording growth of almost 4.0% in 2011, the global economy slowed
perceptibly, barely expanding by 3.0%. This situation was partially due
to a slowdown in the emerging economies after two years of spectacular
but unsustainable growth. It was also the outcome of weak growth in the
developed economies for the second consecutive year. A moderate
recovery in the United States was not enough to offset the weakness in
the euro zone, which slid back into recession. Fortunately, the
encouraging signs that began to appear in emerging markets in the last
quarter of 2012, especially in China, bode well for 2013.

Despite the subdued economic background, financial markets ended 2012 on
a positive note. As in 2011, the major stock and bond indexes faced
political and economic headwinds during the year, but were supported by
further strong central bank actions. Toward the end of the summer,
aggressive intervention by the U.S. Federal Reserve (Fed) and the
European Central Bank (ECB) succeeded in restoring confidence in the
markets.

Europe found itself on the financial markets' radar screen for a large
portion of 2012. The year began well with the success of the ECB's
Long-Term Refinancing Operations. This program, announced in December
2011, injected massive amounts of liquidity into Europe's banking
system and bolstered investor confidence. But the euphoria was
short-lived.

By spring, it was clear that Spain's economy and public finances had
deteriorated more seriously than previously thought. And in May,
political uncertainty in Greece spiked and remained elevated for most
of the summer.

These events, combined with the high level of public debt and economic
weakness in several peripheral countries, revived concerns about the
viability of the single currency. This contributed to a significant
widening of the spreads in yields on Spanish and Italian bonds
vis-à-vis German bonds.

As bond yields in the peripheral countries surged, the ECB pledged to do
whatever was necessary to preserve the euro zone. In September, it
unveiled its Outright Monetary Transactions program for open-ended
purchases of indebted countries' bonds on specified conditions. This
program significantly reduced the likelihood that the euro zone would
break up. It also caused European government bond spreads to narrow
sharply and the world's equity markets to rally.

The positive developments in financial markets notwithstanding, the euro
zone ended the year in the grip of a severe recession. The decline in
the euro zone economy was largely attributable to the considerable
tightening of fiscal policy in the peripheral countries and the high
degree of uncertainty that prevailed from late spring until early
summer. In December, the euro zone's overall unemployment rate exceeded
11.7%, its highest level since the monetary union was created.
Unemployment reached more than 26.0% in Spain and close to 27.0% in
Greece towards the end of the year.

In the United States, economic growth and the financial markets were
affected significantly by these global developments, as well as by
domestic political uncertainty and the actions of the Federal Reserve.
In particular, uncertainty related to the fiscal cliff1 weighed on the economy for most of the year, with negative effects
becoming apparent as early as spring 2012.

This prompted the Fed to take an even more accommodative monetary
stance. Most notably, it launched two new programs of open-ended asset
purchases, which were conditional on improvements in the labour market:
the one for mortgage-backed securities and the other for long-term
treasury bonds. The economy and the financial markets responded
positively to these measures.

The economy grew at an overall rate of 2.2% and non-farm business-sector
activity was up 3.0% in 2012. Even more important, households continued
to repair their balance sheets, reducing their debt-to-assets ratio
from a peak of close to 35.0% in 2009 to about 26.0% at the end of
2012.

As well, the housing sector entered a sustainable recovery. Housing
starts increased significantly and house prices began to rise. This
improvement is welcome because the real estate sector has a positive
impact on household balance sheets and is a significant driver of
growth. Finally, the federal government made progress, albeit modest,
in improving its fiscal position. Government spending fell by 1.7% and
the federal budget deficit went from 8.7% in 2011 to 7.3% in 2012.

1 The budget cliff refers to a series of income tax increases and
government spending cuts that were to take effect automatically on
January 1, 2013.

EMERGING MARKETS

Growth generally slowed in the emerging market economies in 2012, mainly
because of internal factors, such as supply constraints and financial
imbalances, but also amid weak domestic demand in the developed
economies.

China's growth slowed significantly as a result of monetary tightening
implemented 12 to 18 months earlier and a substantial decrease in the
government's capital spending, which returned to a more sustainable
level after the strong stimulus provided in 2009. Weaker external
demand also contributed to the economic slowdown.

India's growth also flagged in 2012 amid the impact of previous interest
rate increases, slow approval of new projects and timid structural
reforms.

In Brazil, previous monetary tightening to counteract inflationary
pressures resulted in a further decrease in growth, which reached only
1.0% in 2012. Brazilian policymakers adopted a series of monetary and
fiscal measures to stimulate the economy but to little avail as it
became increasingly clear that growth was curtailed by weaknesses in
the supply side of the economy.

That being said, a broad range of production and demand indicators
suggests that growth accelerated in the emerging economies in the
latter part of 2012 in response to stimulative policies. Governments in
emerging markets have limited remaining monetary and fiscal leeway,
however. Policymakers must introduce structural reforms to ensure their
economies are innovative and flexible and offer strong growth
potential.

The difficult global economic environment contributed significantly to
the slowing of the Canadian economy in 2012. Partially as a result of
the increasing trade deficit in the first three quarters of the year,
Canada's real GDP expanded by 1.9%2 versus 2.6% in 2011. Growth of final domestic demand was solid in 2010
and 2011 but adversely affected by tighter fiscal policy, lower
non-residential private investment and the onset of an adjustment
period in the residential real estate sector in the second half of the
year.

In this context, the Bank of Canada held its key policy rate at 1.0% all
year despite its concerns about high levels of household debt.
Moreover, the slowdown in emerging markets, combined with increased
energy output in the United States, caused prices to drop for many
Canadian natural resource producers. As a result, the Toronto Stock
Exchange underperformed the other major stock markets in 2012.

Québec's economy expanded at a rate slightly below 1.0% last year.3 The manufacturing sector and exports were constrained by the global
slowdown in 2012 and the strong Canadian dollar. Household spending
also fell significantly during the first half of the year, due
particularly to a drop in consumer confidence. Moreover, after strongly
supporting economic activity in recent years, government investment in
infrastructure continued at a more moderate pace. The year's
encouraging developments included a generally favourable labour market
and a positive contribution by non-residential private investment.

CONCLUSION

Although disappointing in some respects, 2012 ended on a rather positive
note. The tail risk in the euro zone appears to have been reduced
considerably. The United States made substantial progress in addressing
its fundamental problems and many emerging economies are showing signs
of returning to strong growth. In this context, 2013 is looking like a
year of transition toward a more robust global economy with a stronger
rate of growth. But, to ensure such an outcome, strong policy
implementation will be needed in many countries, especially the euro
zone.

2 This figure is an estimate because Canada's fourth-quarter national
accounts have still not been published.3 Only the economic account data for Québec's first and second quarters
have been published to date by the Institut de la statistique du
Québec.

FIXED INCOME

DESCRIPTION

The Fixed Income asset class consists of four portfolios: Short Term
Investments, Bonds, Long Term Bonds and Real Estate Debt. It helps
reduce the level of overall portfolio risk and match depositors' assets
and liabilities.

The Bonds portfolio and the Real Estate Debt portfolios, with net assets
totalling $51.4 billion, are actively managed, whereas the Short Term
Investments and Long Term Bonds portfolios, with net assets totalling
$12.6 billion, are index-managed.

MARKET CONDITIONS

At the start of 2012, the exacerbation of financing problems for some
European governments and the slowdown in the emerging economies weighed
on the markets. Risk assets declined and the long-term growth outlook
was revised downward. In the United States, the economy also slowed and
the unemployment rate was slow to decrease as the impact of the earlier
stimulus programs tapered off. In Canada, GDP growth was disappointing
and the unemployment rate barely budged.

Government of Canada 10-year bond interest rates fell to a historic low
of 1.57% in July before ending the year at 1.80%, down only slightly
from their level at the start of the year.

The credit market was more profitable in 2012. Various measures helped
stabilize the markets: in Europe the Outright Monetary Transaction
program was announced, the European Stability Mechanism was created and
progress was made toward the creation of a single banking regulator,
while in the United States the Federal Reserve announced new support
measures. Investors gradually recovered their appetite for risk, which
was especially beneficial to corporate bonds, with a 6.2% total return,
but came at the expense of Canadian federal bonds, with a 2.1% total
return.

Returns on specialized portfolios
For the year ended December 31, 2012

Net assets1$ billions

Weight2%

Net investmentresults1$ millions

Return%

Index%

Short Term Investments

8.9

5.1

92

1.1

1.0

Bonds

43.8

24.9

1,745

4.3

3.6

Long Term Bonds

3.7

2.1

112

3.4

3.7

Real Estate Debt

7.6

4.3

342

5.1

3.6

Total3

64.0

36.4

2,291

3.9

3.2

1Net assets and net investment results are net of operating expenses.2Percentage of the Caisse's net assets.3Possible discrepancies in the totals (figures or percentages) are due to
rounding.

After benefiting from substantial declines in interest rates in recent
years, the return obtained by these portfolios normalized in 2012. The
overall return on the Fixed Income asset class was 3.9%; it generated
$2.3 billion of net investment results and exceeded the benchmark index
by 0.7%.

SHORT TERM INVESTMENTS

This portfolio returned 1.1%, outperforming its benchmark index by 0.1%.
Its performance reflects an environment of very low short-term interest
rates.

BONDS

The largest share of the assets held by the Caisse is invested in this
portfolio: 24.9%, or $43.8 billion, as at December 31, 2012.

The portfolio returned 4.3%, generating $1.7 billion of net investment
results. The return was 0.7% above its benchmark index.

The positive performance in relation to the benchmark is due essentially
to:

Strategies focused on the reduction of systemic risk related to the
European crisis; and

The higher return on corporate bonds.

LONG TERM BONDS

This index-managed portfolio returned 3.4%.

The result essentially reflects the interest income paid on bonds, while
interest rates fluctuated very little during the year.

REAL ESTATE DEBT

This portfolio returned 5.1%, for $342 million of net investment
results, outperforming its benchmark index by 1.5%.

The higher interest income return explains most of the positive return
spread vis-à-vis the benchmark index.

INFLATION-SENSITIVE INVESTMENTS

DESCRIPTION

The Inflation-Sensitive Investments asset class consists of three
portfolios: Real Return Bonds, Infrastructure and Real Estate. These
portfolios provide exposure to markets offering investment income that
is generally inflation-indexed so as to partially hedge the inflation
risk associated with the liabilities of many Caisse depositors.

The Infrastructure and Real Estate portfolios, which have $24.3 billion
of net assets, are actively managed. The Real Return Bonds portfolio,
which has $1.2 billion of net assets, is index-managed.

MARKET CONDITIONS

In an environment of low interest rates, less-liquid assets, such as
infrastructure and real estate, gained in popularity in 2012 because
they offer a high, stable current return with a generally low risk
profile. Despite the volatile credit market and the difficult economic
recovery, projects and assets with excellent fundamentals were still
able to obtain financing at low rates, which gave them an edge and
enabled them to generate high returns.

Infrastructure

Global demand for infrastructure development, combined with governments'
determination to reduce their budget deficits, should significantly
increase the number of transactions in this sector in the years to
come. Privatization of public assets in Europe and national
infrastructure programs are driving the demand for capital in this
sector. Institutional investors and sovereign wealth funds are
acquiring minority interests in infrastructure projects and providing
an appealing source of financing for industrial companies in the
current economic environment. A number of large institutional players
have expressed an interest in investing massively in this sector, which
is causing prices to firm up on the infrastructure market.

Real estate

The real estate market was rather active in 2012 but the results varied
from one region to another. In Canada and United States, investment in
commercial real estate continued the good performance recorded in 2011,
especially because of solid rental income. This performance is due
mainly to the economic recovery, strength in the residential real
estate sector and the gradual decrease in political uncertainty. In
Europe, however, the performance was adversely affected by the economic
situation and the cautious attitude of tenants who are reducing their
space needs. Finally, Brazilian real estate continued to perform well,
partly because of the burgeoning middle class and the availability of
credit. Even so, the currency's significant depreciation limited the
return obtained once it was translated into Canadian dollars.

HIGHLIGHTS

Returns on specialized portfolios
For the year ended December 31, 2012

Net assets1 $ billions

Weight2%

Net investmentresults1$ millions

Return%

Index%

Real Return Bonds

1.2

0.7

34

2.7

2.9

Infrastructure

6.3

3.6

511

8.7

15.0

Real Estate

18.0

10.2

1,969

12.4

13.2

Total3

25.5

14.5

2,514

11.1

13.1

1Net assets and net investment results are net of operating expenses.2Percentage of the Caisse's net assets.3Possible discrepancies in the totals (dollars or percentages) are due to
rounding.

The overall return on the Inflation-Sensitive Investments asset class
was 11.1%, for $2.5 billion of net investment results. The return
obtained in 2012 fell short of the benchmark index by 2.0%.

REAL RETURN BONDS

This index-managed portfolio returned 2.7%.

The return is due mainly to inflation and interest income.

INFRASTRUCTURE

This portfolio returned 8.7%, for $511 million of net investment
results. It underperformed its benchmark index by 6.3%.

Energy-sector assets contributed to most of the portfolio's increase in
value since the beginning of the year.

Large transactions were carried out to rebalance the portfolio, such as
the partial sale of Heathrow Airport Holdings (formerly BAA), and to
reduce its concentration risk.

The benchmark index consists of publicly traded securities whose
valuation is more volatile than that of the investments in the
portfolio.

For this type of less-liquid asset, performance has to be assessed over
a longer period. Since the reorganization of the Caisse's operations in
the summer of 2009, the Infrastructure portfolio has an annualized
return of 26.7% and has outperformed its benchmark index by 10.4%. This
return includes the results of the Investments and Infrastructure
portfolio before July 1, 2010.

This high return is attributable to the solid operational performance of
the companies in the portfolio and the decline of interest rates in
recent years.

REAL ESTATE

This portfolio is managed by Ivanhoé Cambridge, a company in which the
Caisse has a 93% stake.

This portfolio returned 12.4%, for $2.0 billion of net investment
results. The return fell 0.8% short of its benchmark index.

The return for the year is due mainly to investments in shopping
centres.

These results take into account the impact of the new IFRS accounting
standard, which represents $637 million. This amount reflects the value
of Ivanhoé Cambridge as an entity, taking into consideration the
quality of it real estate portfolio and the value of its management
platform as a whole.

Repositioning of the portfolio continued in 2012 with acquisitions of
shopping centres in Canada and Brazil, office buildings in Paris and
New York and residential buildings in California and London.

For this type of less-liquid asset, performance has to be assessed over
a longer period. Since the reorganization of the Caisse's operations in
the summer of 2009, the Real Estate portfolio has an annualized return
of 10.7%, outperforming its benchmark by 0.8%.

The high return obtained in the shopping centre and office building
sector, primarily in Canada, also contributed a substantial portion of
the return obtained in this period.

The Canadian Equity, Global Equity and Private Equity portfolios, which
have $53.6 billion in net assets, are actively managed. The U.S.
Equity, EAFE Equity and Emerging Markets Equity portfolios, which have
$28.7 billion in net assets, are index-managed.

MARKET CONTEXT

After getting off to a promising start, the stock markets lost steam in
the second quarter, as Europe's difficulties came to the forefront,
notably its deteriorating public finances, problems with Spain's banks
and the impending election in Greece. Equities fell sharply in May,
when a simple, co-ordinated resolution to the crisis seemed
increasingly less likely. The diverging views held by euro zone
governments and institutions, coupled with the slowdown in China,
created concerns about a global recession.

Nevertheless, optimism returned to the markets and the S&P 500 Index
reached a new peak in September after the European Central Bank vowed
to do whatever it takes to preserve the integrity of the euro zone and
the U.S. Federal Reserve announced a third program of quantitative
easing (QE3), stating that it would continue as long as necessary. The
recovery in the U.S. real estate sector as well as the improved
employment picture also pushed the markets up. A degree of uncertainty
remained about the approaching fiscal cliff. Even so, the markets
performed well toward year-end when an agreement seemed imminent.

Despite the turmoil on the markets, most of the equity indexes were up
in 2012. That being said, the Canadian market underperformed the other
regions, mainly because of its sector composition.

HIGHLIGHTS

Returns on specialized portfolios
For the year ended December 31, 2012

Net assets1 $ billion

Weight2 %

Net investment results1 $ millions

Return%

Index%

Equity

Canadian Equity

22.0

12.5

1,279

6.6

7.7

Global Equity

13.8

7.8

1,575

14.0

13.6

U.S. Equity

10.2

5.8

1,075

13.5

13.4

EAFE Equity

9.8

5.6

1,246

15.2

14.7

Emerging Markets Equity

8.7

5.0

1,024

15.8

15.6

Subtotal Equity Markets3

64.5

36.7

6,646

11.9

12.0

Private Equity

17.8

10.1

2,133

13.6

14.1

Total3 4

82.3

46.8

8,779

12.2

12.4

1Net assets and net investment results are net of operating expenses.2Percentage of the Caisse's net assets.3The Québec International portfolio was closed out on November 30, 2012.
Its contribution is included in these figures.4Possible discrepancies in the totals (dollars or percentages) are due to
rounding.

For 2012, the Equity asset class generated $8.8 billion of net
investment results and had the highest overall return of the asset
classes, at 12.2%, underperforming its benchmark index by 0.2%.

CANADIAN EQUITY

The Canadian Equity portfolio returned 6.6%, for net investment results
of $1.3 billion, underperforming its benchmark index by 1.1%.

The underperformance is due exclusively to security selection in the
materials sector. The portfolio is positioned to benefit from
urbanization in emerging economies. Although it lagged in 2012, this
investment theme has a promising long-term outlook.

For 2012, the Canadian market underperformed the international markets
mainly because of:

The preponderance of companies in the materials and energy sectors,
which generally underperformed.

Canadian financial sector securities, which had a strong 17.6% return
but significantly underperformed the financials of the other developed
countries, which advanced about 30% as they rebounded much more
significantly from their sharp declines of recent years.

GLOBAL EQUITY

The Global Equity portfolio returned 14.0%, for $1.6 billion of net
investment results. It outperformed its benchmark index by 0.4%.

Its outperformance is due mainly to the security-selection strategies
used by the portfolio management team for the various sectors,
including energy and healthcare.

A new management mandate geared mainly to companies offering a stable,
predictable return on invested capital was introduced into the
portfolio during the year. This mandate is designed to reduce the
portfolio's volatility while maintaining a high return, and it served
as the basis for the creation of the Global Quality Equity portfolio as
at January 1, 2013.

U.S. EQUITY, EAFE EQUITY AND EMERGING MARKETS EQUITY

These index-managed portfolios returned 13.5%, 15.2% and 15.8%,
respectively, all slightly outperforming their benchmark indexes.

Of the 45 countries in this investment universe, 42 had a positive
performance in 2012.

In the developed countries, Germany advanced by a solid 28.0%, whereas
Spain, which was hit hard by its public-finance problems, returned only
0.7% on the year.

Five of the six main emerging markets, representing about three-quarters
of the investments, had returns ranging from 14.1% to 23.2%. Only
Brazil had a negative return (-2.2%), mainly because of the substantial
devaluation of its currency.

PRIVATE EQUITY

This portfolio returned 13.6%, for $2.1 billion of net investment
results, and underperformed its benchmark index by 0.5%.

Almost half of the increase in the portfolio's value is due to leveraged
buyouts. Investments in development capital and distressed debt are the
other main contributors to the return.

During the year, the portfolio was repositioned, notably through the
$1.5-billion transaction in Quebecor Media, which helped reduce the
portfolio's concentration risk.

For this type of less-liquid assets, performance has to be assessed over
a longer period. Since the Caisse reorganized its operations in the
summer of 2009, this portfolio has had an annualized return of 18.3%,
outperforming its benchmark by 6.0%.

The return is due mainly to the operational performance, debt reduction
and strong earnings of the companies in the portfolio. Moreover, they
carried out loan refinancing to take advantage of low rates and review
their maturities.

INVESTMENT VALUATION

The Caisse values all of its illiquid infrastructure, private equity and
real estate investments at fair market value. In accordance with
current Canadian accounting rules, it must value them at the price it
would obtain if they were sold on the market under normal competitive
conditions. The Caisse also measures the value of the assets in its
ABTN (Asset-backed Term Notes) portfolio.

Independent external valuators and valuation committees made up of
experts in the field measure all major investments.

In addition, as part of their mandate to audit the Caisse's financial
statements, the Caisse's co-auditors, the Auditor General of Québec and
Ernst & Young, review the fair value of all the Caisse's liquid and
illiquid investments.

INFRASTRUCTURE AND PRIVATE EQUITY

Investments whose fair value exceeds a predetermined materiality
threshold are submitted to an independent valuation committee or an
independent external valuator. 94% of the fair value of the investments
in the portfolio was reviewed in this manner.

REAL ESTATE

The Real Estate portfolio moved to the new International Financial
Reporting Standards (IFRS) in 2012.

In accordance with IFRS, the Caisse's real estate portfolio is now
considered an investment entity. The assets and liabilities of the real
estate subsidiaries are therefore no longer consolidated in the
Caisse's Real Estate portfolio balance sheet.

Under the new accounting standard, Ivanhoé Cambridge has to be measured
and recorded as an investment reflecting its enterprise fair value.

This enterprise value was determined by independent external valuators
and reflects, among other things, the fair value of the properties
held, of the quality of the portfolio and of the integrated management
of the platform.

ABTNS

The fair value of the ABTNs was determined for each investment in the
portfolio, taking into consideration the underlying risks.

Moreover, the Caisse retains an independent external firm to review the
data and methodology used to establish the fair value of the ABTNs.